CANADA FX DEBT-Canadian dollar gains as investors eye tariff negotiations

By Fergal Smith

TORONTO, March 5 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, extending its rebound from a one-month low, as investors weighed prospects of Canada's receiving some relief from U.S. tariffs.

The loonie CAD= was trading 0.3% higher at 1.4350 to the U.S. dollar, or 69.69 U.S. cents, after trading in a range of 1.4341 to 1.4449.

On Tuesday, the currency touched its weakest intraday level since February 3, at 1.4543.

U.S. President Donald Trump told Canadian Prime Minister Justin Trudeau that he had not done enough to curb fentanyl smuggling in a phone call that did not appear to convince Trump to lift the punishing 25% duties on all imports from Canada and Mexico.

But later in the day, The White House said that Trump will exempt automakers from the tariffs for one month as long as they comply with terms of an existing free-trade agreement between the three North American countries.

"The negotiation aspect is where we are now," said Amo Sahota, director at Klarity FX in San Francisco. "The market is trying to settle in and find out what the new normal is going to look like for the next few months."

The downturn in Canada's services economy deepened in February as firms avoided committing to new business in anticipation of a trade war, S&P Global's Canada services PMI data showed.

The U.S. dollar .DXY fell against a basket of major currencies after Germany proposed a 500-billion-euro ($531 billion) infrastructure fund, boosting European growth prospects and the euro EUR=.

The price of oil CLc1, one of Canada's major exports, fell 2.9% to $66.28 a barrel after U.S. crude oil stockpiles posted a larger-than-expected build.

Canadian bond yields were mixed across a steeper curve. The 2-year yield CA2YT=RR eased 1.5 basis points to 2.549% and the 10-year CA10YT=RR was up 2.7 basis points at 2.967%.